NOTE 10: INCOME TAXES

Income before taxes and the provision for taxes consisted of the following:


Fiscal Years	2011		2010		2009
(in thousands)
Income before taxes:
United States	$	40,259	$	137,426	$	46,928
Foreign		127,195		3,661		40,693

Total	$	167,454	$	141,087	$	87,621


Provision for taxes:
US Federal:
Current	$	21,157		$	40,926		$	25,357
Deferred		(9,351	)		(3,795	)		(6,465	)

		11,806			37,131			18,892
US State:
Current		5,169			2,496			3,709
Deferred		(3,370	)		505			(3,459	)

		1,799			3,001			250
Foreign:
Current		17,278			9,939			3,638
Deferred		(12,337	)		(12,597	)		878

		4,941			(2,658	)		4,516

Income tax provision	$	18,546		$	37,474		$	23,658

Effective tax rate		11	%		27	%		27	%

The difference between the tax provision at the statutory federal income tax rate and the tax provision as a percentage of income before taxes (effective tax rate) was as follows:


Fiscal Years	2011			2010			2009

Statutory federal income tax rate		35	%	$	35	%	$	35	%

Increase (reduction) in tax rate resulting from:
Foreign income taxed at lower rates		(24	%)		(24	%)		(9	%)
US State income taxes		1	%		2	%		1	%
US Federal and California research and development credits		(3	%)		(3	%)		(5	%)
Stock option compensation		1	%		3	%		4	%
Settlement with tax authorities		(1	%)		20	%		—
Release of valuation allowance		—			(6	%)		—
Other		2	%		—			1	%

Effective tax rate		11	%	$	27	%	$	27	%

The effective tax rate in fiscal 2011 and 2010 benefited significantly from foreign income taxed at lower rates as compared to fiscal 2009 due to: (1) an increase in earnings in foreign jurisdictions where the tax rate is lower than the U.S. statutory tax rate and (2) the cessation of the payment arrangement for a non-exclusive license of specified Company intellectual property rights to a foreign-based Company subsidiary as a result of an IRS settlement in fiscal 2010. The IRS settlement, however, increased the effective tax rate in fiscal 2010 by 20%. The Company reinvests a majority of the earnings of this jurisdiction indefinitely outside of the United States and therefore has not provided U.S. taxes on those indefinitely reinvested earnings.

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company's deferred tax assets and liabilities are as follows:


At the End of Fiscal Year	2011			2010
(in thousands)

Deferred tax liabilities:
Purchased intangibles	$	120,215		$	49,021
Depreciation and amortization		28,056			30,603
Other		346			309

Total deferred tax liabilities		148,617			79,933

Deferred tax assets:
Inventory valuation differences		9,988			8,622
Expenses not currently deductible		19,425			15,863
US Federal credit carryforwards		2,524			2,314
Deferred revenue		4,900			3,197
US State credit carryforwards		13,143			14,895
Warranty		3,972			2,421
US Federal net operating loss carryforward		11,460			12,404

Foreign net operating loss carryforward		19,343			17,437
Net foreign tax credits on undistributed foreign earnings		8,528			12,804
Accruals not currently deductible		31,575			24,220

Total deferred tax assets		124,858			114,177
Valuation allowance		(21,316	)		(21,432	)

Total deferred tax assets		103,542			92,745

Total net deferred tax assets /(liabilities)	$	45,075		$	12,812

At the end of fiscal 2011, the Company has federal, California and foreign net operating loss carryforwards, or NOLs, of approximately $29.1 million, $13.8 million, and $89.3 million, respectively. The federal and California NOLs expire in years 2017 through 2031. There is, generally, no expiration for the foreign NOLs. Utilization of the Company's federal and state NOLs are subject to annual limitations in accordance with the applicable tax code.

The Company has federal research and development credit carryforwards of $2.4 million (expiring in years 2012 through 2024) and California research and development credit carryforwards of approximately $15.8 million that can be carried over indefinitely.

The Company's valuation allowance is primarily attributable to foreign net operating loss carryforwards. The Company has determined that it is more likely than not that the Company will not realize these deferred tax assets and, accordingly, a valuation allowance has been established for such amounts.

At the end of fiscal 2011, the Company's foreign subsidiary accumulated undistributed earnings that are intended to be indefinitely reinvested outside the U.S. were approximately $178.4 million. The amount of the unrecognized deferred tax liability on this amount is approximately $62.5 million.

The total amount of the unrecognized tax benefits, or UTB, at the end of fiscal 2011 was $28.7 million. A reconciliation of unrecognized tax benefit is as follows:


(in thousands)	Federal, State and Foreign Tax			Accrued Interest and Penalties			Unrecognized Income Tax Benefits
At the end of fiscal 2008	$	35,928		$	4,400		$	40,328
Additions for tax positions related to the current year		3,495			871			4,366
Additions for tax positions related to prior year		699			41			740
Other reductions for tax positions related to prior years		(2,464	)		(277	)		(2,741	)
Foreign exchange		604			—			604

At the end of fiscal 2009	$	38,262		$	5,035			43,297

Total UTBs that, if recognized, would impact the effective tax rate at the end of fiscal 2009	$	38,262		$	5,035		$	43,297

Additions for tax positions related to the current year		4,091			1,372			5,463
Additions for tax positions related to prior years		4,600			—			4,600
Other reductions for tax positions related to prior years		(21,453	)		(3,767	)		(25,220	)
Foreign exchange		(27	)		—			(27	)

At the end of fiscal 2010	$	25,473		$	2,640			28,113

Total UTBs that, if recognized, would impact the effective tax rate at the end of fiscal 2010	$	25,473		$	2,640		$	28,113

Additions for tax positions related to the current year		7,438			1,877			9,315
Additions for tax positions related to prior year		706			62			768
Other reductions for tax positions related to prior years		(7,508	)		(1,831	)		(9,339	)
Foreign exchange		(125	)		(14	)		(139	)

At the end of fiscal 2011	$	25,984		$	2,734		$	28,718

Total UTBs that, if recognized, would impact the effective tax rate at the end of fiscal 2011	$	25,984		$	2,734		$	28,718

The Company and its subsidiaries are subject to U.S. federal, state, and foreign income taxes. The Company has substantially concluded all U.S. federal income tax audits for years through 2009 with the exception of acquired companies. State income tax matters have been concluded for years through 1992 and non-U.S. income tax matters have been concluded for years through 2000. The Company is currently in various stages of multiple year examinations by federal, state, and foreign (including France and Germany) taxing authorities. Although the timing of resolution and/or closure on audits is highly uncertain, the Company does not believe that the unrecognized tax benefits would materially change in the next twelve months.

In fiscal 2010, as part of the IRS settlement, the Company agreed to revise a valuation and payment arrangement for a non-exclusive license of specified Company intellectual property to a foreign-based Company subsidiary. This resulted in a net charge of $27.5 million, net of a release of liabilities for unrecognized tax benefits. The release of these liabilities for the unrecognized tax benefits is included under 'Other reductions for tax positions related to prior years' in the table above.

The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company's UTB liability including interest and penalties was recorded in Other non-current liabilities in the accompanying Consolidated Balance Sheets.